Denmark: Maersk Group’s Businesses in 3rd Q Performed Well and Delivered Good Returns

The Group’s profit was USD 371m (USD 1,671m) and return on invested capital (ROIC) was 4.8% (15.7%). Cash flow from operating activities was USD 2.1bn (USD 3.0bn). The majority of the Group’s businesses performed well and delivered good returns.

The Group’s container and tanker activities continued to face difficult markets due to excess supply of tonnage and a fragmented competitive landscape. With an equity ratio of 52% (50%), net interest bearing debt of USD 14.5bn (USD 13.7bn) and committed undrawn credit facilities of USD 9.3bn (USD 9.6bn), the Group is well prepared and determined to execute on its long term growth aspirations and seize market opportunities within its core businesses despite current turmoil in the financial markets.

The Group’s Container activities transported 2.1m FFE (1.8m FFE), 16% higher than in Q3 2010. However, this was not enough to offset the impact from declining freight rates leading to a loss for the period of USD 297m (profit of USD 1,028m). The unsatisfactory market conditions are a challenge for the liner industry, however Maersk Line aims to achieve an EBIT-margin 5% point above peers. Maersk Line launched a new service concept on the Asia-Europe trade, ’Daily Maersk’, offering daily departures, fixed transportation time and market leading reliability.

The Group’s Oil and gas activities continue to invest in building and developing its resource base, and had another strong earnings quarter with a profit of USD 341m (USD 430m). The profit was negatively affected by higher exploration costs of USD 336m (USD 166m) and positively by a higher average oil price of USD 113 per barrel (USD 77 per barrel).

The Chissonga discovery offshore Angola has been declared commercially viable to the local authorities and appraisal drilling is ongoing to assess the development options. Maersk Oil has a 20% share in the Avaldsnes discovery in Norway, where the operator raised the estimates of recoverable resources in September 2011, increasing Maersk Oil’s share from 20-80 million barrels to 160-360 million barrels of oil equivalents.

The Group’s terminal activities continue to show stable earnings growth and delivered a profit of USD 174m (USD 140m) and a ROIC of 13.5% (11.9%). Container throughput increased by 10% compared to Q3 2010 on a like-for-like basis. New concession agreements were secured in Moin, Costa Rica and Callao, Peru. Furthermore, APM Terminals won the concession for the Skandia Container Terminal in Gothenburg, bringing the number of new and expansion terminal projects to 15.

Maersk Tankers continued to face difficult market conditions and posted a loss of USD 37m (USD 11m excluding impairment loss of USD 107m). The overcapacity in the crude and product market is expected to continue whereasthe gas market is positively affected by limited new supply.

Maersk Drilling had another strong quarter with a result of USD 138m (USD 126m), positively affected by high uptime and a continued increasing demand for efficient drilling rigs. All rigs were employed during Q3 and are fully booked for the rest of the year.

Maersk FPSOs and Maersk LNG had full vessel utilization during Q3 and posted a profit of USD 59m (loss of USD 5m excluding USD 67m divestment gain). In October 2011, an agreement was signed to sell Maersk LNG for USD 1.4bn on a cash and debt free basis. A potential divestment gain will not have significant impact on the Group’s profit.

Maersk Supply Service benefited from improved spot rates in the North Sea and a high activity level in Brazil and delivered a profit of USD 68m (USD 45m).

Svitzer experienced mixed market developments and slightly improved the profit to USD 34m (USD 33m). The retail activities continued to be negatively affected by customers’ migration towards lower margin goods and made a profit of DKK 208m (DKK 450m).

Other businesses delivered a profit of DKK 64m (DKK 274m).

Revenue increased by 9% to USD 45.3bn (USD 41.4bn), primarily due to higher oil prices and container volumes. Profit was 26% lower at USD 3.1bn (USD 4.2bn), negatively affected by lower freight rates, higher bunker costs and lower share of the oil production, partly offset by higher oil price and the divestment gain from the sale of Netto Foodstores Limited, UK of USD 0.7bn. The Group’s ROIC was 10.0% (13.6%).

Cash flow from operating activities was USD 6.2bn (USD 7.4bn), while cash flow used for capital expenditure was USD 7.7bn (USD 3.2bn). Net interest-bearing debt increased with USD 2.1bn to USD 14.5bn (USD 12.4bn at 31 December 2010).

Total equity was USD 36.5bn (USD 34.4bn at 31 December 2010), positively affected by the profit of USD 3.1bn. Dividend paid was USD 0.9bn (USD 0.3bn).

“We are heading for a fairly satisfactory result for 2011, in particular when you consider the very low rates in container shipping. The Group’s other core activities have performed very well, and we are confident about our strategy and investment plans. With Daily Maersk, Maersk Line has improved its service proposition to customers, and our recent large drilling contracts, our new terminal concessions and the significant Avaldsnes find in Norway demonstrate that our core businesses are progressing and expanding” says Group CEO Nils S. Andersen.

Outlook for 2011

– The Group still expects a result lower than the 2010 result, as stated in the interim report in August 2011, including the USD 0.7bn gain from the divestment of Netto Foodstores Limited, UK. The Group expects a profit for 2011 in the range of USD 3.1-3.5bn including divestment gains.

– The Group’s Container activities now expect a negative result for the full year as a consequence of lower rates on especially the Asia-Europe trade. Oil and gas activities expect a profit at the same level as for 2010, based on an

oil price of USD 105 per barrel, higher level of exploration activities and a share of the oil and gas production of around 120 million barrels which is 13% below 2010.

– The result for Terminal activities, Tankers, offshore and other shipping activities as well as Other businesses is expected to be above 2010 excluding divestment gains.

– For Retail activities the result, excluding divestment gains, is now expected to be below 2010.

– Cash flow from operating activities is expected to develop in line with the result, while cash flow used for capital expenditure is expected to be significantly higher than in 2010.

– The outlook for 2011 is subject to uncertainty, not least due to developments in the global economy, oil price andglobal trade conditions.

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Source: Maersk, November 9, 2011